If all this has made you feel that you too might be in a similar boat here are a  few tips to help you plan your retirement better and ease in to the transition and ensure retirement security.

Retirement Guide – Tips To Help Secure Your Retirement

1. Set Your Retirement Date: By setting your retirement date, you will be able to zero in on a time frame and hence gauge whether your current savings are sufficient to last you and guarantee you a secure retirement. If this is the case you may be able to extend the date a little longer there by giving yourself a couple more years to boost your retirement savings. However if you feel that you are already in that position it wouldn’t make any sense in prolonging your retirement more than you would have to.
2. Place: Another important decission which you will need to consider where are you going to retire to? Are you going to stay in an unencumbered house, or are you going to downsize to a smaller place? Are you going to be carrying be a mortgage or will you be debt free? Are you going to move to a retirement village or relocate etc. These questions will also help you decipher the amount of money you will require in your retirement and ensure retirement security.
3. Insurance Options: One fact that all retirees must consider is getting long term care insurance. While experts suggest that getting this prior to the age of 65 is not good, prolonging it may mean that you develop a condition or suffer an illness that will disqualify you from getting this insurance. It is always advisable to consult an expert in the field prior to getting this insurance.
4. Debt: Most individuals like to enter their retirement phase debt free. In order to do this make sure that as you approach your retirement date you have paid out your outstanding credit card balances and any other looming debt that you have so you can enjoy a hassle free and secure retirement. Some individuals may also think it prudent to consult an attorney or bankruptcy expert with regard to these issues.
5. Budgeting: Once you have detailed the above it is always advisable to budget to ensure retirement security. Creating a budget will ensure that you have planned your retirement expenses and have an estimate as to what your spending should be through the years so as to ensure that you do not deplete your hard earned money all too quickly.
6. Checking Your Social Security Options and Estate Planning: Individuals can start drawing on their social security benefit payments by the age of 62. However, if you prolong this, it will ensure that your benefit checks are larger, thus guaranteeting you a more safe and secure retirement. While looking into your social security payments and benefits options, it may also be advisable to consider estate planning. If you have not made a will and a power of attorney then it might be time to make sure that these are in place to ease your affairs for your loved ones on your passing. If however you have already had these drawn up then it may help to have them reviewed.

There are a few simple steps that should help you plan your retirement out better and ensure a happy, peaceful and secure retirement.

References:

1. Retirement Advice – Wallet Pop
2. Plan Your Retirement – Social Security Online

Below is an example to help you understand the determination of your tax bracket:

Tax Bracket Calculator

Let us assume that your Gross Wage Income for the 2008 income year to be filed in 2009 is $120,000.00. Now the question arises as to how will the income tax liability on your income be calculated.

• The first $8,350 will be taxed at 10%. $8,351-$33,950 will be taxed at 15%.
• The amount from $33,951-$82,250 will be taxed at 25% and the amount between $82,250-$120,000 will be taxed at 28%.
• This will give you a total tax liability of $835 + $3,840 + $12,075 + $10,570 = $27,320.
• Hence your marginal tax rate in this instance is 28%, because that is the rate at which your highest income is taxed.

One of the main reasons to use a marginal tax rate is to calculate the amount by which a deductions will reduce your income. For instance if your marginal tax rate as in this case is 28%, for every $100 deduction that you claim your taxable income will be reduced by $28 ($100 x 0.28).

Effective Tax Rate

Another interesting concept in determining your tax bracket is understanding what your effective rate of taxes is. The effective tax rate of an individual is the total amount of an individual’s income which has been paid in taxes. Effective rate is calculated as below:

Let us assume the above example. In this case the total taxes due are $27,320. The consumer’s gross income for the year was $120,000. In this case the effective rate would be $27,320/$120,000 = 0.2276 or 22.77%.

When trying to uderstand your tax bracket, always remember that your effective rate will always be lower than your marginal rate owing to the fact that you have been paying taxes at lower rates all the way through to your marginal tax rate.

Combined Tax Rate

Another interesting rate to keep in mind is the combined rate. The combined tax rate for an individual is the marginal tax rate for an individual plus the state tax rate minus any state taxes that can be deducted from your federal tax returns. In the above example the combined rate would be 33% (28% + 5%) should you opt for standard deductions. The main purpose of calculating your combined rate is that it enables you to understand the amount of your non-wage related income that you can keep and what your tax liability is. Put simply it tells you how much of your investment income is going to be taxed and how much can you retain. In this example if you earned $10,000 in investment income, you would be paying $3,300 in taxes and would retain $6,700.

These are some of the basic concepts on how to determine your individual tax bracket and there by calculate your tax liability. So when you consider the fact that your taxable income is exactly what was on your contract, this may be wrong as it is usually your income left over after making contributions to 401(K) account and deducting the tax breaks you are entitled to.

References:

1. So what’s your tax bracket? – CNN Money
2. Federal tax brackets – Money Chimp

Understanding Taxation: Basic Issues

1. Refunds: This has been an issue with tax payers over the years. At times certain consumers with the same gross earnings in the year could end up getting vastly different tax return amounts from the tax office at the end of the year in the form of a refund. While there could be several reasons for this, one main reason for this is that you could either be paying too much or too little in tax withheld each year. To simplify this for a better understanding of tax – you are basically paying too much; in essence you are giving the government an interest free loan and are reducing your net income which could have been used to meet other requirements. In the event that you are paying too little in tax withheld, you could be liable for an underpayment penalty. One of the important tax basics to understands is that you are either required to pay 90% of your current year’s tax liability to the government by the end of the year or 10% of the previous year’s liability, which ever is smaller.
2. Varying Tax Rates:This is an area where the consumers understanding of tax is limited. Consumers often feel that their income is taxed uniformly throughout. This is however, untrue. Different amounts are taxed at different rates. Put simply, the marginal tax rate for an individual is the tax bracket at which his/her highest portion of income is taxed.
3. Late Payments: Consumers, who file their taxes by the 15th of April but do not make their payments, could be up for a late payment penalty and is a very important tax basic issue worth knowing. The same is also true for consumers who file for an extension. Extensions only allow you to file your taxes after the due date, however you are still required to make your payments to the tax office by the 15th of April. If you have made a partial payment, you could still be liable for a late payment penalty on the rest.
4. Audits: Understanding tax is important to avoid being audited. One of the ways to reduce your chances of being audited is by ensuring that you complete your tax returns correctly and in full. Should you have any questions regarding your tax basics make sure you contact the tax office customer service team and ask them to walk you though any questions you may have. The tax office enforces penalties on incorrect or misleading information.
5. Estimated Taxes: Paying estimated taxes could be a good idea if you are self employed, are expecting a large sum from the sale of a capital item, feel that you do not have sufficient tax withheld to cover non wage related income or even a pensioner. Estimated taxes are due on the following dates: Jan 15, April 15, June 15 and September 15.
6. Determining Your AGI and Taxable Income: When understanding tax, it is important to understand your income as well. Your AGI or Adjusted Gross Income is your gross income minus any allowable or above the line deductions such as voluntary IRA contributions, child-support / alimony payments, heath savings account contributions etc. Once you have determined your AGI, the next step is determining your taxable income which is your AGI minus any exemptions and further deductions. It may be noteworthy that the lower your taxable income the lower your tax liability. Hence taking advantage on tax breaks is a great idea. In addition to this it may also interest consumers to know that credits are better than deductions for the simple reason that credits are a dollar for dollar reduction in the amount of taxes you owe. Simply put, if you have a $500 credit, that would mean that you owe $500 less in taxes.

These are certain basic and simple facts that are important to know about individuals’ taxes. These could help consumers become more tax-savvy and take advantage of tax beaks where applicable.

References:

1. Money Basics: Tax – CNN Money
2. Tax Basics – Bankrate

Banking & Savings: Tips To Keep In Mind

1. Safety: One of the primary reasons why consumers use bank accounts is owing to fact that money in a bank account is safe. Let’s face it, no matter what, one cannot deny the security offered by a bank is far greater than any floor-secured safe, hidden closet or underground treasure trove. One might remember the federal government’s pledge to insure bank accounts for up to $250,000 per depositor during the credit crunch. However, come January 1st 2010 the normal insurance of $100,000 per depositor is said to return.
2. Convenience: Bank and savings fees are justified by the convenience factor. Apart from allowing you to safely store your money, banks allow you with a lot of other privileges like writing cheques or using ATMs etc. Bank saving accounts tend to pay lower rates on accounts which bear interest, in comparison to similar accounts which can be held with broking houses or mutual fund companies.
3. Beware Of Inflation: Unknown to consumers, inflation slowly erodes any interest that the banks pay you for your saving accounts. What you may not know about your bank and savings is that with the rising prices of goods and services some times it is possible for your money to lose out in a bank account.
4. Interest Rate Inequality: This is a commonly known fact about bank and savings that different bank saving accounts earn different interest rates. Interest rates are calculated differently at different banks. If you really want to compare your bank accounts, the best banking tip is that it might make sense to compare the Annual Percentage Yield. The APYs are always calculated using the same formula everywhere.
5. Getting Better Rates: A lot of consumers often use certificates of deposit (CDs) to earn better interest rates. However, it may be of interest to know that CDs require consumers to lock in their money for a period of 3 months up to five years. Another banking tip is the option of investing your money in the money market during a bull market as the returns which the money market would generate would far surpass the interest rates on saving accounts offered by your banks.
6. ATM Charges: This issue has become an increasingly popular one. Using an ATM of another financial institution can prove to be costly thus affecting your saving accounts. Not only do you get charged $1.46 by your bank for using another ATM, the other bank chares you a further $1.97 to use its facility.
7. Banking Without Banks: While this banking tip may sound absurd it is also true. You do not have to store your cash/money in a bank account. There are a lot of companies out there which are offering similar services to banks and with pretty much the same flexibility as a saving account. Examples of these institutions are credit unions, building societies, mutual fund companies, broking houses etc.

The above mentioned facts are a guide to help consumers understand their personal bank and saving options  better. It is always advisable for consumers to shop around prior to settling on a particular saving account or bank. It is also recommended that consumers should consider their own banking and budgeting needs as well prior to making up their minds.

Long Term Investment Bonds – Risks

Mentioned below are some of the risks associated with investing in bonds:

• Interest Rate Risk: One of the major risks associated with investing in bonds is the interest rate risk. Simply put, this denotes that short term bonds are the safest as there is usually minimal interest rate fluctuation over the short term, in comparison to long term, high-yield or junk bonds which are subject to higher interest rate fluctuations. One fact that needs to be taken into consideration is that the longer the term of the bond the higher the return while the greater the interest rate risk and vice versa. Investors should consider the time frame of the bond while investing because at times it may be more prudent to invest your money elsewhere and hedge your returns against inflation.
• Assumed Risk: This risk refers to credit rating risk. Credit ratings allows investors to make more informed decisions while investing in bonds. The major bond ratings agencies are S&P and Moody’s. Bonds with higher ratings carry lower risk and bonds with lower ratings carry higher risk. Bonds which have a rating of triple-B and above are considered investment grade. It is safe to assume that in a bull market junk bonds may be a safe option but in a bear market investment grade and higher bonds are the usual bond investment choice.
• Bonds May Be Called: Certain bond investments may have the option of being called back by the issuer. This is done in order to protect the bond issuer from paying higher interest rates. The bond investments which have call back options entitle the bond holder to receive a predetermined amount on the call date prior to the maturity of the bond. This however constitutes the risk that you may have to reinvest your money at a lower interest rate.

Advantages Of Bond Investing

Listed below are some of the advantages of investing in bonds:

1. Bond investments are considered predictable investments. This is because you know how much of interest you will receive, when you will receive it and how much money you will receive upon the maturity of the bond.
   
   
2. Investing in bonds is considered to be more stable than stocks. This is true more in bear market owing to the stable nature of bonds.
3. Retirees and long-term investors consider bond investment the safer option as it assures them of a fixed income stream should they decide to buy and hold the bond.
4. The interest rate paid by a short term bond usually exceeds that offered by a bank’s savings account.
5. Certain bond investments, e.g. municipal bonds offer tax exempt income.
6. In comparison to other forms of investments, a bond investment require less management.

Disadvantages Of  Bond Investing

Some of the disadvantages of investing in bonds are:

1. Bonds offer no hedge against inflation rates as inflation is one of the main reasons why bond prices fall.
2. Bonds offer lower interest rates in comparison to stocks over the long term.
3. Bond investment prices may vary depending on market interest rates.
4. There is chance that certain corporations or government subsidiaries may go bankrupt thereby leaving your bond investments worthless.
5. Long term bond investments usually tie up funds for a long time which can be invested elsewhere for better returns.

These are some of the advantages and disadvantages of investing in bonds and once you have read everything about investing in bonds and learned all the facts, you are likely to be more aware of what it takes before investing in bonds.

References:

1. Investing in Bonds Factsheet – Ohio State University
2. Buying Bonds: Advantages and Disadvantages – RL Rouse

The US bond market has various forms of bonds available for investment. Some of the most common variety of bonds issued in the market are US government securities, municipal bonds, corporate bonds, mortgage and asset backed bonds, federal agency securities and foreign government bonds. Bond investments can also be issued in the forms of bills, notes, debt obligations and debt securities. Listed below are some of the important facts about investing in bonds which investors need to know prior to considering investing in them.

Long Term Bond Investment Tips

• Bonds Can Be Considered I.O.Us: Bonds are a way to fund specific operations or projects be it in the public or the private sector. When government agencies or large corporations want to raise secured finance, they do so by issuing bonds in the primary market and as a result are known as issuers. When individuals purchase these bonds, they become bond holders and as a result of which own secured credit.
• Stocks Vs Bonds: For long it has been a misconception that stocks outperform bond investments owing to the fact that stocks are seen as more volatile and hence are considered to return greater value to their investors. However long term moving averages when compared would disagree. It is only in the post World War II era that stocks have outperformed bonds. Between the years 1870 to 1940 both stocks and bonds had early the same returns. However in the bond market of 2001-2003 bonds once again over took stocks. Although stocks did better in between 2004 and 2007 by the year 2008 bonds once again had taken over.
• Investing In Bonds Can Cause You To Lose Money: The age old saying that bonds are the safest investments on the market may not hold as much water as it once did. As seasoned institutional investors will testify, bond investments can cause you to lose money if not managed efficiently. While investing in bonds represent fixed interest investments, because of their fixed life span and fixed interest payments, the returns a bond may generate may vary and may also sometimes be negative causing you to lose money.
• Bond Prices Are Negatively Related To Interest Rates: With the rise in interest rates in the market bond prices will fall and vice versa. However for an investor who is going to hold his or her bond investment to maturity, interest rate fluctuations do not matter as the investor will get back the face value of the bond upon maturity plus all the interest payments over the life of the bond.
  
  
• Bonds and Mutual Funds Are Mutually Exclusive: Investors often confuse bonds and mutual funds. With a bond investment, investors have the guarantee that they will receive the face value of the bond upon maturity plus all the interest payments over the life of the bond, unless the issuer goes bankrupt. However in the case of a mutual fund the return an individual investor can expect is uncertain owing to the fact that the actual value of the mutual fund fluctuates.
• Tax-Free Bonds: While tax free bonds might yield less that taxed bonds, it might be prudent to hold certain tax-free municipal bonds depending upon the tax bracket you fall under. For example if you are in the 28% federal tax bracket it would be better to hold tax-free bonds owing to the fact that they will net you more in comparison to taxed bonds after tax.
• Invest Long Term In Bonds: A very common issue with investing in bonds is the time factor. A lot of investors sell their bond investments prior to maturity and as a result of which may sometimes experience very little capital gains or in certain cases capital losses. However investors who can hold their bond investment till maturity need not worry about interest rate fluctuations or varying yield.

While investing in bonds is a safer option by comparison, it is always advisable as with any investment, that consumers should carry out sufficient research and seek the advice of a professional prior to investing in bonds.

References:

1. Investing in Bonds, Top Things to Know – CNN Money
2. Bond Basics – Securities Industry and Financial Markets Association

Advantages Of Investing Money In Gold

Some of the advantages of investing in gold are as follows:

• Market Diversification: Owning Gold Stocks can allow an investor to diversify their portfolio. The one catch with investing in gold stocks is that while the company may see its share prices fall the actual price of the commodity itself may be soaring. The reverse is also true. One such example which springs to mind is during the great depression when gold stocks were through the roof even though it became illegal to own physical gold.

• Asset Diversification: Gold is considered a universal currency owing to its value and gold investment is therefore always considered a good idea. Every good portfolio does include a bit of direct gold in it. While gold is not an investment per se, it provides investors with a hedge against market fluctuations or currency fluctuations and even in the case of geo-political uncertainty.

• Liquidity: While gold is not as liquid as stocks or other near money instruments, it can easily be bought or sold on a variety of markets and can painlessly be converted in to cash and that is why people like investing in gold. For an asset with as much intrinsic value as gold this is a great trait to have.

• Privacy Of Investment: Unlike stocks and shares which are subject to mandatory government reporting, gold investment does not fall under any such regulation. In addition to this, gold can also be incorporated into your IRA or SEP accounts.

Disadvantages Of Investing Money In Gold

Some of the disadvantages of investing in gold are:

• Market Cycles: In a broad market cycle it is hard to determine which will be subject to more speculation bullion or gold stocks. In addition to this, unlike gold itself gold stocks are subject to bull and bear market cycles and the commodity itself could be subject to government regulations, with regard to holding etc. In addition to this the prices of gold invesment stocks are linked to the commodity itself which is the more volatile of the two.

• Company Risk: Owing to the fact that at the end of the day individual investors buying gold stocks are dealing with companies, they are subject to a whole new other set of risks. These gold investment risks could range from government regulations on the company or the industry, change of management, commodity price fluctuations, law suits, political risks, currency fluctuations etc.

• Gold ETFs: When it comes to investing in gold, consumers might feel that owning gold exchange traded funds (ETF)is kind of the middle ground between owning physical gold and gold stocks. However, even gold etfs have disadvantages. Primarily with gold etf’s there are fees and charges that eat into your costs. Moreover there are also commissions which are an add on for every buy and sell. In addition to this, owing to the fact the ETFs are actively managed, there are management risks and overall turnover risks as well which might be associated with your Gold ETFs.

The above mentioned is just a snap shot at some of the advantages and disadvantages of investing gold in its various forms. While gold is a versatile investment and attracts investors in various shapes and forms, it is also advisable that investors be prudent while investing and completely consider and understand all their gold investment options.

References:

1. Advantages and Disadvantages of  Investing in Gold – Money Energy
2. Advantages of Gold – Blanchard Online

In accordance with the rules laid out by the Department of Housing and Urban Development (2), upfront mortgage insurance of MIP is a requirement on most FHA loans. FHA requires these payments to be submitted to itself within 10 days of the closing or disbursement date, whichever comes last.

Once consumers have paid of their FHA loans they are entitled to receive an FHA refund for a portion of the upfront Mortgage Insurance Payment. This might not be the case in the event that the loan was assumed or was refinanced in an FHA to FHA refinance program. However to fully understand your eligibility it ma be beneficial to keep the following facts in mind:

How Are FHA Home Loan Program Refunds Determined?

Once the loan is terminated the FHA commissioner determines the amount of FHA refund due. FHA Refunds are directly related to the number of months for which the FHA home loan was insured. The following might be useful information:

• FHA home loans which had a closing date prior to January 1st 2001 and were endorsed before 8th December 2004, no refund is due after the 7th year of insurance.
• For an FHA home loan closed on or after January 1st 2001 and endorsed before 8th December 2004, no FHA refund is due after the 5th year of insurance.
• For a loan  closed on or after 8th December 2004, no FHA refund is due unless the loan was refinanced and in which case the no refund is due after the third year of insurance.

How Are FHA Government Home Loan Refunds Processed?

Once your mortgage insurance is terminated, the mortgage company will notify HUD of the termination. As a subsequent course of action if you are eligible for an FHA refund, HUD will request the Department of Treasury to issue you a cheque for your refunds amount or will send you an application for a Premier Refund or for a Distributive share payment. This is when you will need to carefully complete the application, notarize it and provide HUD with supporting information and documentation. Once all the information is in order and the application has been closely reviewed, you will either be issued with a cheque from the Department of Treasury or will be requested for more information.

Following Up Your FHA Home Loan Program Refund

If after a period of 45 days of you paying off your FHA home loan, you have not received either an FHA refund or an application from HUD, contact your mortgage company. Ensure that they have sent off all the correct documentation to HUD. If everything has been correctly sent and everything is in order and a period of 120 days have passed and you have received nothing contact the HUD immediately.

This is a bit of information to help you understand and track your FHA refund. In most cases if consumers have any questions or issues with regard to their refunds they should contact HUD on (800) 697 6967 or mail the Department of Housing and Urban Development at P.O.Box 23699, Washington DC 20026-3699.

References:

1. How are FHA Refunds Determined? – Federal Housing Association
2. FHA Homeowners Fact Sheet – U.S. Department of Housing and Urban Development

Costs Of Home Loan Refinancing

This is one of the most important things to be weary of when refinancing. Below mentioned are the main costs associated with refinancing and how they can wipe out any savings consumers might have made by switching. In spite of the fact that loans may be at all time low rates at the moment, the increase in costs associated with them can be a huge set back to any savings which might have resulted from the refinance.

1. Processing Fees: In order to remain profitable, many lender have commenced predatory practices of introducing additional fees for the exact same amount of work. For instance, consumers are now charged not only an application fees but also processing fees and underwriting fees. When tallied these fees add up to several hundred dollars and can greatly reduce savings. Make sure you check the fees of a few banks before settling.
2. Fannie Mae and Freddie Mac: For all loans which are purchased by Fannie Mae or Freddie Mac, they charge anywhere between 0.25% to 3% of the loan value in fees. If the loan is a cash out refinance they charge another 0.25% to 3%. Make sure that you ask your bank if the loan is going to be sold to Fannie Mae or Freddie Mac, because if it is, be prepared to be hit with the fees.
3. Valuation Fees: With the new regulations in place, from now on whether a deal goes through or not, the valuer who carried out the valuation on the property which is to be refinanced will need to be paid. Hence from now on be prepared to pay the valuation fee upfront as soon as you apply.
4. Mortgage Insurance: As more and more insurance companies start paying attention to FICO scores while calculating premiums, individuals with lower FICO scores can expect to pay more in mortgage insurance. Mortgage insurance is compulsory for anyone who is looking to borrow more than 80% of the property value. With the shift in risk assessment individuals with marginally lower FICO scores have seen their insurance premiums rise.

Dos and Don’ts Of A Mortgage Refinance

Below mentioned are some of the golden rules when it comes down to refinancing. This should help consumers better understand the things to look out for when refinancing:

1. Do not be pressured into refinancing by Debt Collectors.
2. Try and avoid refinancing your home in order to pay off unsecured debt like your credit card debt or medical bills. This is a grave mistake consumers often make as they trade in unsecured credit with little risk for secured debt with a lot of risk.
3. Avoid refinancing over and over again with the same lender. If you are being constantly urged to do this, this can only mean that the lender is trying to maximize profit by urging clients to refinance.
4. Make sure that you do no refinance low interest loans with high interest ones. This will cause you to lose any savings that you thought you might have made. Moreover this will also reduce the equity growth in your house.
5. Avoid scam refinances. There are a lot of predators in the home loan market and it is advisable that you should keep an eye out for them.
6. Be careful of the adage “too good to be true”, because if it seems like it is too good to be true then it probably is.

These are few basic pointers to help consumers understand the things they should look out for when refinancing.

References:

1. Refinancing Dos and Don’ts – Community Housing Resource Center
2. 4 Costly Refinancing Fees to Watch out For – Smar Money, The Wall Street Journal

Paying Off Your Mortgage Early

If you are seriously thinking of putting  a plan in place that is going to help you pay off your mortgage loan early, then make sure that you stay committed to it. Here are some tips to help you pay off your mortgage soon:

• Make Early Repayments: One great way to start paying off your mortgage early is by making payments into your mortgage account before the due date each month. This will help reduce the interest charges on your mortgage account and you will be amazed to see the amount you have saved in interest by just making early repayments into your mortgage.

• Use Your Lump-sum Payments: Each year if you have received a tax refund or a unused leave payment or an employment termination payment, plough these payments back into your mortgage to reduce the balance faster.

• Prepay Into Your Mortgage: By looking at the loan schedule on your mortgage you will be able to ascertain the interest and the principle component.  By doing this you will be able to make out what the principle component for the next month is going to be. Prepay a little in to your mortgage early each month and eventually by the end of the year you would have made an entire extra payment.

• Fortnightly Payments: Remember that if you are paying fortnightly you have 26 payments in a year and not 24. Consumers often make this mistake. The advantage of fortnightly payments is that at the end of the year just as we have stated above, you make an entire extra payment into your mortgage.

• Inform The Banks: If you are making extra contributions into your mortgage loan to pay it off early, make sure that you inform the banks of the same. You also must keep a tab that the payments are being used to reduce your principal component of the loan.

Pros And Cons Of Paying Off Your House Mortgage Early

Here are a few arguments that support the notion of paying off your mortgage early:

1. Once you have paid off your mortgage loan you are truly the outright owner of the property.
2. Paying off your house mortgage sooner also ensures that you are stress free as you have managed to get rid of a major financial liability.
3. Paying off your mortgage sooner also opens up a lot of other investment avenues.

Here are some arguments that do not support the notion of paying off your mortgage soon:

1. Once you have paid off your mortgage, you lose the ability to claim tax deduction on the interest component of your house.
2. Instead of paying off your mortgage early a lot of people are of the opinion that the surplus funds instead of being channelled into your mortgage could be used for investment purposes. This is however is very debateable as real estate investors would argue that after paying off your mortgage, you get another mortgage on the property and used the funds to buy an investment property and gain rental returns from it. This in turn would allow you to use the rental returns for investment purposes.

As we have seen there are arguments to both sides of the coin. However, there is no denying the fact that paying off your mortgage early has a lot more benefits than downsides.

References:

1. Tips on Paying Off A Mortgage Early – Consumer Tips and Reports
2. How to pay off your mortgage early – The Greenest Dollar